What is presumptive taxation?
Reviewed by Ranga & Company
Presumptive taxation: Presumptive taxation lets small businesses and professionals declare income as a fixed percentage of turnover or receipts, under sections 44AD, 44ADA and 44AE, instead of keeping full books.
At a glance
- 44AD (business)
- Turnover up to ₹2 crore (₹3 crore if cash receipts ≤ 5%); profit 8%, or 6% for digital receipts
- 44ADA (professionals)
- Receipts up to ₹50 lakh (₹75 lakh if cash ≤ 5%); profit 50%
- 44AE (transporters)
- Up to 10 goods vehicles; fixed income per vehicle per month
- Eligible
- Resident individuals, HUFs and partnership firms (not LLPs)
- Advance tax
- 100% by 15 March
- Form
- ITR-4
How 44AD works
You declare at least 8% of turnover as profit, or 6% of receipts received digitally. No other business expenses are deducted, and you don't need detailed books. You can declare a higher profit if it is actually higher.
| Turnover ₹80 lakh | Profit declared |
|---|---|
| All received by bank / UPI | 6% = ₹4.8 lakh |
| All received in cash | 8% = ₹6.4 lakh |
The 5-year lock-in
If you opt for 44AD and then declare lower profit in any of the next five years, you can't use 44AD again for the following five years, and a tax audit may be required. Plan before you switch.
Common mistakes
- Using 44AD for commission or agency income, which isn't eligible
- LLPs trying to use 44AD; only individuals, HUFs and partnership firms can
- Declaring below 8%/6% without books and a tax audit
Frequently asked questions
Can freelancers use presumptive taxation?
Yes, specified professionals such as consultants, doctors, architects and IT professionals can use 44ADA, declaring 50% of receipts as income if receipts are up to ₹50 lakh (₹75 lakh if cash is within 5%).
Do I need to keep books under 44AD?
Detailed books aren't required, but you still need records of turnover, bank statements and GST returns if registered.
Which ITR form is used for presumptive income?
ITR-4 (Sugam), if total income is up to ₹50 lakh and other conditions are met; otherwise ITR-3.
Related terms
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